Money Raising: Small Firms Loans Guarantee & Others

Sam_Bee

Hi,

Has anyone had any success with the Small Firms Loans Guarantee Scheme backed by the DTI? As a new business, this I identified (with Businesslink) as this being the best form of raising money (£75k to be precise), as it was set up to support new businesses with no security.

However, I have approached my own bank, who simply laughed me out the water (rejected without even seeing a very polished business plan: Lloyds - I'm looking forward to leaving you!).

It seems banks are reluctant to follow this scheme (which seems absurd - they cover only 25% of the loans risk, less than they offer me on a daily basis for an unsecured loan!). However, have you have more joy? Have you used an advisor to obtain your start-up successfully?

Or would you recommend sourcing the money elsewhere - it's a registered (non-trading) ethically minded travel company. Well researched, with a good business plan & financial forecasts. Am reluctant to consider Business Angels simply because of a lack of experience in this area.

Thanks in advance for all your advice!

Mark7799

How much did you have to put into the proposition? Although it's DTI-backed, Banks still tend to shy away from the scheme and will still consider it on a commercial basis with all other factors taken into account.

Sam_Bee

Mark7799 wrote:

How much did you have to put into the proposition?

Do you mean how much was I prepared to put in? Anywhere between 0 - 33% of the money required. But I don't have much more to invest unfortunately and am keen not to hive off large chunks of the business to investors / angels (but will do if I have to).

Mark7799

Yes, I do mean how much were you prepared to put in. Banks are moving more and more towards limiting their %age exposure on a project and this sounds like an example of that policy. It may also be that the Bank you approached just had a policy not to invest in that sector at present. At varying times, many sectors have fallen in and out of favour with Banks in recent years, dotcoms, pubs/hotels/property developers etc.

Best thing I could suggest is try another Bank - just because one turned you down doesn't necessarily mean another will.

Sam_Bee

Mark7799 wrote:

Best thing I could suggest is try another Bank - just because one turned you down doesn't necessarily mean another will.

Thanks! I'm currently trying another 3! Hi profile companies like Coffee Republic got their start-up from the scheme, but I can't get much more info on what banks pro-actively use it. Shame, as lots of budding entrepreneurs out there could benefit from it.

Pennywise

I don't know whether they still do, but Nat West were certainly willing to do the guarantee scheme 3/4 years ago. I'm surprised Business Link havn't told you which is the best bank to approach as normally your local Business Link and their preferred bankers work together for this kind of loan funding. The last one I worked with, it was a condition of lending by the bank that Business Link were involved as they said they relied on Business Link's evaluation of the business. I wonder though if the loan you want is just too small for the bank to be bothered with all the hassle and paperwork of dealing with a Govt quango - the ones I've been involved with were for higher amounts.

As for Business Angels, I think you'll find you are wanting too little money. Outside investors will usually be looking at more substantial investments and the prospect of a very healthy profit (200-500%) with a guaranteed exit route within 3-5 years.

Can you not raise money from a re-mortgage of your house?

You say you can afford to put in upto 33% of the money required and that you can get an unsecured loan of 25%, so you can actually raise 58% of it yourself. If any of the remaining money is for the purchase of equipment or vehicles, you should be able to buy those on hire purchase or rent/lease them. You should also be able to get a modest overdraft facility from most banks (£5k to £10k) with a decent business plan if you demonstrate that you are putting your own money in as well.

Most of the smallest businesses do not get large business loans nor outside funding. They do rely on a combination of borrowing and renting from various sources. The providers and lenders prefer this as the risks are shared.

Sam_Bee

Thanks - there's some very good points in there. The 33% includes personal loans though - so 58% is way out of reach! It's a Travel Company, so there is not much in the way of assets to buy; just large bonding requirements.

No house to re-mortgage or I would of done a long time ago! Ah, the downside of trying to start a business whilst still young(ish!).

3 banks are looking over the scheme, so I'll see their responses.

As for Business Angels; that is one area I'm not sure how to approach. I would offer a minimum 200% return after 3 years anyway. Thought they would demand more... What I need is an advisor in this area. Any suggestions anyone?

Bigbubble

No advice I am afraid but - Good Luck with this, Sam Bee!

I would be very interested to hear how you get on with other banks. This is soemthing we are considering ourselves.

observer_2

Hi, Just wondering a couple of things.

75k set up costs - what will these be?
How much of the 75k will you put in?
Can you offer any security?
What is your year 2 T/O / Profit?

Just basic questions i was pondering...

Sam_Bee

In answer to the above..

75k set up costs - what will these be?
Brochure, website, back-office, bonding, working capital etc.
How much of the 75k will you put in?
As little as possible, having devoted 2+ months FT unpaid work + 2 years of spare time to it!
But realistically... 20-25k + 10k from another investor.
Can you offer any security?
No.
What is your year 2 T/O / Profit?
Tour Operating is a high revenue business, with average spend of ~2k p.p. Happy to share info, but less so publicly. If you're genuinely interested, then feel free to PM!